What We Can Learn From The Stock Market Isn't All Financial, Nor What The Headlines Tell Us

Apr 27, 2012

The stock market is not the economy, as some neophytes might assume. If it's up, it doesn't mean we're doing well; if it's down, it doesn't mean we're not. Rather, it is a survey of the economy and its future, as the profitability and expansion trends (or unprofitability and contraction) of publicly traded companies in all sectors of the economy are monitored. It's a pretty good gauge of how our nation is doing financially as well as its prospects. In fact, markets are nothing more than people and how they react is a telling not so much of the current, but a foretelling of what they expect in the future. It's called investing after all, not purchasing — which is in, and for, the moment. So, it's with much perplexity that people look at the Dow Jones Industrials, the S&P 500, the New York Stock Exchange and the Nasdaq and wonder what exactly is going on these days.
The political implications for the fall campaign are enormous. When the stock market goes up, those invested, at least 60 percent of the country (not only the "one percent"), feel wealthy — perhaps wealthier than they actually are — and spend more. A rising stock market signals not only corporate profitability, business investment, economic expansion and job growth, but may propel actual consumer spending. When this happens, prospects for incumbents (presidential and congressional) improve.

Of course, the larger factor determining the "wealth effect" is the value of one's home, the largest single investment most people ever make. This only adds to the schizoid nature of the economy now: The market is up (kind of, despite the hyperbole of its March rally as we'll see below), while home values in many parts of the country remain in the tank.

I have penned many times I believe society and the economy is undergoing a tectonic change, a change where the country is reverting back to its core culture and beliefs. Change is always difficult for the outcome can be unquantified thus creating market volatility. All must remember the market is a microcosm of every variable in society, variables that today change daily regarding their degree of significance. ...

In other words, he sees a return to a more traditional America, which doesn't foretell an Obama re-election. Who said the culture and the economy are not interrelated? As to the actual economic nature of current market trends, as much as the administration and its Chief Financial Flak at the Treasury Department try to make of the market's current rise, take this in:

Bloomberg states more than 82% of companies that have reported quarterly results since April 10 have topped estimates. ...

Equities are valued by corporate cashflows discounted by a risk free interest rate. Earnings are at a record. Interest rates are at a record low. Hypothetically stocks should be at an all time high but it is clearly evident the lack of confidence is prohibiting such an advance.

While Mr. Engelke doesn't see a massive decline unless there is an absolute catastrophe in Europe, China or the U.S., today, he expounded upon the reason why cash is sitting in banks, losing money at negative interest, rather than invested, and what will happen when confidence returns:

I have written at length about the lack of confidence in our elected leaders. Can I remotely suggest there is the lack of confidence in the analysis or the reporting of data partially predicated by the fact other than the few who were then viewed as outliers did not see the 2008-09 implosion brewing?

Speaking of missing a potential major outlier, there has been little discussion of today’s massive cash balances. As I have penned a gazillion times excess bank reserves are over $1.5 trillion versus the historical average of $1 to $2 billion. Based upon Federal Reserve statements these funds will earn close to nothing for another 2 ½ years.

When inflation is factored in, the real return is a negative 2.5%. If the inflation rate stays at this level, these funds would purchase 6.125% less goods by the time the fed alters its monetary stance.

A similar conclusion can be made with the massive cash hoard of the S & P 500 companies, an amount totaling over a record $2.1 trillion as per recent Fed data. Depending upon the source cash balances are historically around $600 billion.

In other words there is $3.7 trillion or about 25% of annual GDP generating a negative real return. Economics 101 dictates cash gravitates to the highest and most productive use. It is one of those non debatable rules similar to day always follow night.

I will continue to argue once confidence rises and the outlook regarding regulatory and tax policy is quantified, these funds will be utilized in a more productive manner. It is the proverbial extremely dry kindling that will eventually ignite.

It's amazing what the stock market can teach us. It's not always what we think and those numbers on the screen with red and green arrows next to them rarely tell the story. What many have been trying to say, and what Mr. Engelke demonstrates, is that the marke's recent run-up is more of a natural correction based on, if anything, anticipation of a political change, reflective of the gauge that is millions of people participating in the markets. It's current leveling is actually a negative because given the massive liquidity on the sidelines, between bank reserves and corporate cash that would be otherwise put to work increasing their value, are sitting in record low interest bearing accounts which generate negative returns when factored for inflation. That's a lot of devaluation, even in the age of the devalued president.

Our 2016 Summer Interns

Our 2016 Summer Interns

The Family Foundation’s summer internship program has grown over the years and attracts some incredibly talented college students. This year, our 2016 intern class is bright, fun-loving, creative, driven, and faithful. With dozens of students applying for a limited number of spots, the caliber of interns continues to improve. This summer, our interns are learning about each area of the organization, from policy research to social media outreach to grassroots activism and community organizing.

One aspect of our summer internship program that continues to evolve is in Biblical worldview training and discussion. Each Friday, our interns spend several hours hearing from various experts on different issues and participate in in-depth discussions of these topics. Our goal is to continue to expand this program in future years, and I look forward to announcing more about these plans in the coming months!

I hope you’ll enjoy the brief bios below and be sure to click on their names to read more about each of them:

Abbey Jessee (Development Intern; Radford University)Abbey returns to us after interning last summer. This is her second summer interning and she is very excited to be back again. She attended Radford University and graduated in May with a degree in Marketing and a minor in Sports Administration. A fun fact about Abbey is that she has broken her arms 5 times and her foot once. Although it has been a little over a year since she’s been clumsy and broken anything and her family is hoping that the streak continues!

Grace Saunders(Social Media Intern; University of South Carolina)Grace is the Social Media Intern at TFF this summer. She will be a junior next year at the University of South Carolina, Go Cocks! She is studying Library and Information Science with the hopes of minoring in Political Science, as her dream job is to be a political analyst. Her favorite sport is tennis and she considers herself to be the next Serena Williams. Peanut Butter and Chocolate are her two top favorite foods, so the way to her heart is Reece’s and Cookout Milkshakes. She obviously got the internship start date wrong because she didn’t show up until a month through the internship. She is well traveled and considers herself an expert in traveling abroad. Grace probably knows more than you so she considers humility her best quality

Richard Wiley(Policy Intern; Liberty University)Born in Jacksonville, Florida and presently living in Goochland, Virginia, Richard was drawn to The Family Foundation because of his interest in the interaction of church and state in local politics, particularly those in the Old Dominion. He was homeschooled for much of his primary education and studied with Liberty’s dual enrollment program to complete high school with an associate’s degree. Richard graduated with a bachelor’s degree in pre-law from Liberty this spring after spending time on the University’s policy debate team, moot court team, and SGA legal team.

Evan Withrow (Grassroots Intern; Christopher Newport UniversityEvan is an excellent candidate for the new British Prime Minister. After Britain voted to leave the EU last month, Prime Minister David Cameron decided he no longer wanted to steer Britain to its uncertain future and announced his resignation. The nation will be left looking for somebody come October and much to our excitement as the first American non-profit organization to endorse an all-American candidate for Prime Minister, Evan has agreed to act in this capacity should he be chosen, so long as he gets to keep his desk and his American accent. His experience includes, but is not limited to, diligent and faithful service to his country in his softball league for several years, two years of college education at Christopher Newport University studying communications (probably the undercover kind), and YouTube. We can’t guarantee that he’ll be selected by the present monarch due to a less than advantageous situation with the unionist party, but if he succeeds at gaining the position, he’ll leverage technical jargon against malefactors better than Humphrey Appleby ever did.

Cameron Dominy (Elections and Grassroots Intern; Charleston Southern University)Cameron is very much a Yankee…yet he wears Chubbies and goes to school at Charleston Southern University. Cameron is a Former Division One Javelin Thrower, but his competitive spirit carries over which is why he is currently serving as the President pro tempore for the CSU Student Government and is also the chairman of the CSU College Republicans. The South Carolina Student Legislature is lucky to have him as their chief of staff.

Introducing Abbey Jessee

Introducing Abbey Jessee

Abbey Jessee is the Development Intern at TFF this year. This is her second summer interning and she is very excited to be back again. She attended Radford University and graduated in May with a degree in Marketing and a minor in Sports Administration. One of Abbey’s favorite times in college was when she had the opportunity to intern with the Radford Athletic Department as a Sports Marketing Intern. During this internship she worked with multiple sports teams doing advertising and promoting sporting events on and off campus as well promotions and student involvement during game time.

After, she graduated college she decided that while still looking for a job it would be beneficial to have another internship under her belt in order to gain a little more experience. Coming back to The Family Foundation she was excited to learn more about fundraising and all of the efforts that go into garnering donors. After this internship she would like to get a job doing event planning for corporations.

Her favorite thing to do is go to Virginia Tech football games with her family. This has been a tradition that has been going on even before she was born and she attended her first football game at 4 months old and has only missed a couple home games. Her favorite game that she has been to so far was when Virginia Tech played Ohio State at OSU and Virginia Tech won the game! The atmosphere was by far the craziest she has ever seen it and OSU was one of her favorite stadiums that she has been to. Her favorite movie is Sweet Home Alabama, but Frozen does come in as a close second. A fun fact about Abbey is that she has broken her arms 5 times and her foot once. Although it has been a little over a year since she’s been clumsy and broken anything and her family is hoping that the streak continues!

Abbey is excited to see what God’s plan is for her after the internship!

Introducing Cameron Dominy

Introducing Cameron Dominy

This is Cameron Dominy’s second consecutive summer interning for The Family Foundation. He returns as a Grassroots intern this time around, after spending the previous year working in Elections.

A Connecticut native, Cameron’s family currently resides in the Blacksburg area. For the majority of the year, he studies Political Science and History at Charleston Southern University in South Carolina. At his college, Cameron leads the on Campus College Republicans Chapter, and serves as the President pro tempore of the Student Government Association. Last year, he was elected to be the Governor of the South Carolina Student Legislature, a student run and perpetuated organization with thirteen college delegations and over one hundred representatives. He will continue to serve in that capacity until the upcoming spring semester. Following graduation from college, Cameron plans on pursuing a graduate degree in Political Science at either George Mason or William and Mary.

Cameron enjoys reading, good tea, and all things Boston sports. He finds collections of Nathaniel Hawthorne’s short stories especially stimulating, and he frequently writes about current political issues. Cameron has a particular love for sarcasm, which much of his writing tends to reflect. He is also a former NCAA Division One athlete, as the threw the Javelin for Charleston Southern his Freshman year of college.

Cameron hopes that the experience and worldview training of two summers with the Virginia Family Foundation will allow him to be an effective voice for Christ across the American political system.